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27/12/2013

"Asia will be Spanish franchises' next big discovery"

Gema B. Muñoz

Consumer apathy driven by the economic crisis in Spain has not spoiled franchise plans there; on the contrary, not only do people remain undaunted, but they have strengthened their positions and inspired new concepts and projects, both in and outside Spain. On average, franchisees will end 2013 with more commercial units than last year and with a slight upswing in employee numbers. According to Santiago Barbadillo, Director of franchise consultants Barbadillo Asociados, the sector's next big discovery, in the near future no less, will be Asia.

"Asia is overwhelming because of its size; however, besides China, there are many markets for Spanish franchisees to conquer, such as Thailand, Indonesia, and Malaysia", he says. Barbadillo also highlights Gulf countries; the US, and Florida in particular; and Europe, and especially Eastern countries as ideal destinations for Spanish franchises, regardless of their activity.

"Spaniards have always made the mistake of not internationalizing, something we could have done much sooner", he says, although he recognizes that "many businesses will be able to remain afloat precisely because they've discovered life beyond Spain".

Nevertheless, foreign investors continue to see Spain as an ideal location for business development. Although there are myriad candidates, Barbadillo notes that US investors are the most persistent, determined to bring hamburger and tex mex catering concepts to Spain. However, those are concepts for which there is starting to be less scope for growth, says Barbadillo.

In what areas can franchises flourish?

As a result of the crisis, franchises are now more than ever driven by specialization, provided that they find they right, unsaturated niche. In view of public support for those specializations, especially in terms of food, Barbadillo believes that "Franchises can return to traditional business areas, focusing on fish, meat and fruit," businesses which, like the majority of traditional shops, have been losing ground in the crisis. "There's no reason why networks of fishmonger and butcher franchises can't flourish. It's a segment with considerable scope for growth and one in which a network has many more possibilities than the owner of a single fish market."

In this line of specialization, Barbadillo also augurs the development of hospitality businesses focused on "tapas, due to their moderate average ticket; sushi, because it's already well-known; and ethnic and fusion cuisine, like Mexican." As he tells Wiki Spanish Food, the market will see in 2014 a new Mexican franchise from a brand that already operates in Spain with several establishments, a brand which still has time to get the ball rolling with this new venture so as to take advantage of future improvements.

Those companies that want to be around when times are good need to get in the game now", he says. According to Barbadillo's calculations, "Logically, 2014 should be a considerably better year for the economy in general, and for franchises in particular, provided that projections for an increase in consumer spending are fulfilled. Even a small boost will create a climate of confidence in which we'll see growth in those franchises that are already operating and, obviously, no growth from those that aren't even up and running yet."

Existing franchises will also experience changes when their concepts are highly specialized. “Specialization should not be confused with mono-products. Businesses focusing on the latter are slowly diversifying to justify the average ticket for the year as a whole and to adapt to changes in demand."

According to Barbadillo, that’s what happened with businesses that originally focused on frozen yogurt. These are companies which arose as a result of very specific demands and which are now adapting their menus to increase coverage of customers and function all year long.

These types of isolated demands are currently driving the proliferation of franchises linked to imitation designer perfumes and electronic cigarettes, concepts which Barbadillo does not expect to last long.

Of all economic activity sectors, he believes the hospitality segment is the safest bet when it comes to becoming a franchisee. "Hospitality is an industry that is constantly reinventing itself, and it is without a doubt the leading industry for franchises in Spain". There are currently 138 brands in the sector operating as a franchise in Spain.

Who's behind those franchises?

This sector attracts investors, who have economic capacity and prior sales and business experience and who are willing to focus on franchises and pay an entry fee of over 400,000 euros.

Another highly-recurring franchise holder profile in Spain are members of a family, who generally don't have sales or business experience. As a result, their original investments are usually less than 300,000 euros and they enter the hospitality segment businesses with lower average tickets.

According to Barbadillo, it is precisely those types of partnerships which distinguish franchisees in Spain and in our European neighbors. The entry fee, which is higher in Spain, and the lack of ongoing training for franchisees on the part of the franchisor are two other factors where Spain and other European countries diverge in terms of operating franchises.

These are precisely the two weakest areas of Spain's franchise system, according to Barbadillo. He also notes that, despite this situation, the majority of franchisees in Spain remain 12 years with their franchisors and that 80% plan on renewing their contracts with their parent companies.

As for a geographic analysis within Spain, "The Canary Islands and Galicia still lag far behind in terms of franchises".

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